10-K 1 copsync10k123115.htm 10-K copsync10k123115.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


 
FORM 10-K


 
 x          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year ended December 31, 2015
 
001-37613
(Commission File Number)
 
COPSYNC, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
98-0513637
 (State or other jurisdiction of incorporation or organization)
 
 (I.R.S. Employer Identification No.)
 
 
16415 Addison Road, Suite 300
 
 
 Addison, Texas 75001
 
 
 (Address of principal executive offices)
 
     
 
 (972) 865-6192
 
 
 (Registrant’s telephone number, including area code)
 
     
 
 Securities registered pursuant to Section 12(b) of the Act:  
Common Stock, $0.0001 par value
 
     
 
 Securities registered pursuant to Section 12(g) of the Act:
 
     
 
 None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ¨    No  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ¨    No  x
 
Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x    No  ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
 Large accelerated filer
 o
 
 Accelerated filer
 o
 
             
 
 Non-accelerated filer
 o
 (Do not check if a smaller reporting company)
 Smaller reporting company
 x
 
 
Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o    No  x
 
The aggregate market value of the registrant’s common equity held by non-affiliates of the registrant at June 30, 2015, based on the $0.19 per share closing price for the registrant’s common stock on the OTC Markets Group Inc.’s QB Tier, was $25,319,455.
 
The number of shares of the registrant’s common stock outstanding as of March 21, 2016 was 8,675,760.

 DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of COPsync, Inc.’s definitive 2016 Proxy Statement are incorporated by reference into this Form 10-K in response to Part III to the extent described herein.
  
Table of Contents
     
 Page
 PART I
 
3
 
ITEM 1.
3
 
ITEM 1A.
8
 
ITEM 1B.
13
 
ITEM 2.
13
 
ITEM 3.
14
 
ITEM 4.
14
       
 PART II
 
15
 
ITEM 5.
15
 
ITEM 6.
15
 
ITEM 7.
16
 
ITEM 7A.
23
 
ITEM 8.
23
 
ITEM 9.
23
 
ITEM 9A.
23
 
ITEM 9B.
23
       
 PART III
 
24
 
ITEM 10.
24
 
ITEM 11.
24
 
ITEM 12.
24
 
ITEM 13.
24
 
ITEM 14.
24
       
 PART IV
 
25
 
ITEM 15.
25
   
26
   
27
       
 
 F-1
 
 F-2
 
 F-3
 
 
PART I 
 
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS AND RISK FACTORS
 
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including:  any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.  Forward-looking statements can be identified by such words and phrases as “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “current outlook,” “we look forward to,” “would equate to,” “projects,” “projections,” “projected to be,” “could be” or “anticipate” and other similar words and phrases.  Such forward-looking statements may be contained in the sections “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” among other places in this report.
 
Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed.  Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this report.  We do not intend, and undertake no obligation, to update any forward-looking statement.
 
ITEM 1.  BUSINESS
 
Overview

COPsync, Inc. (“COPsync,” the “Company,” “we,” “our” or “us”) operates what we believe to be the only real-time, law enforcement mobile data information system in the United States.  We refer to this real-time, in-car information sharing, communication and data interoperability network as the “COPsync Network.” The COPsync Network, delivered via software as a service, is designed to:
 
 
·
Improve communication between and among law enforcement officers and agencies. Allow law enforcement officers to compile and share information, in real-time, via a common database accessible by all such officers on the COPsync Network, irrespective of agency jurisdiction;

 
·
Allow officers to query, in real time, various local, state and federal law enforcement databases, including (i) the FBI Criminal Justice Information Service (CJIS) database, (ii) the law enforcement telecommunications system databases for the States of Texas, Mississippi and Massachusetts, (iii) the historical databases of our agency subscribers who have provided us with such access, (iv) certain Department of Homeland Security’s El Paso Intelligence Center (EPIC) information relating to persons crossing the United States – Mexico border, and (v) our COPsync Network database. As we continue to expand the scope of our operations to states others than noted above, we anticipate that we will be granted access to the law enforcement telecommunications databases in those states as well, subject to approvals from the applicable governing state and municipal agencies;
 
 
·
Allow dispatchers and officers to send, in real-time, BOLO (be on the lookout) and other alerts of child kidnappings, robberies, car thefts, police pursuits, and other crimes in progress to all officers on the COPsync Network, regardless of agency jurisdiction;
 
 
·
Allow officers to write citations, offense and crash reports and the like and electronically transmit, in real-time or near real-time, the information in those reports to the COPsync database and local court and agency databases;
 
 
·
Inform officers of outstanding Texas Class C misdemeanor warrants, in real-time, at the point of a traffic stop and allow the officers to issue a warning with respect to those warrants or, as a future enhancement, collect payment for those warrants using a credit card, through a specific feature enhancement to the COPsync Network often referred to as the WARRANTsync system.
 
The Homeland Security Act of 2002, which created the Department of Homeland Security, mandated that all U.S. law enforcement agencies (federal, state and local) implement information sharing solutions, referred to as “interoperability.”  The COPsync Network offers this interoperability.  Prior to the introduction of the COPsync Network, significant information sharing among law enforcement agencies, regardless of agency jurisdiction, did not exist in the United States.  We believe that this lack of interoperability existed because law enforcement industry is fragmented, reportedly comprised of approximately 18,000 agencies across the U.S., and law enforcement software vendors maintain proprietary systems that are not intended to interface with systems of other vendors.  Our business model brings real-time information sharing, communication and data interoperability to as many law enforcement agencies as possible.

We also offer the COPsync911 threat-alert service for use in schools, hospitals, day care facilities, government office buildings and other facilities with a high level of concern about safety and security.  When used in schools, the COPsync911 service enables school personnel to instantly and silently send emergency alerts directly to the closest law enforcement officers in their patrol vehicles, and to the local 911 dispatch center. The alert is activated with the mere click of an icon, from any computer within the facility and/or from any cell phone and other mobile devices associated with the facility.  A notification that an alert has been issued is also sent to the cell phones of all law enforcement officers in the area and to all teachers, administrators, and other staff at the school, alerting them of imminent danger.  We expect our COPsync911 service to reduce emergency law enforcement response times in those circumstances when seconds count.
 
Once the alert is sent, a “crisis communication portal” is established among the person(s) sending the alert, the responding patrol vehicles and the local law enforcement 911 dispatch center. This allows the person(s) initiating the alert to silently communicate with responding officers and the 911 dispatch center about the nature of the threat, whether it is an active gunman, fire, suspicious person or other emergency. The crisis communication portal also provides a link to a diagram of the school/facility and a map to its location. 

We also augment our other services with our own law enforcement in-car video system, named VidTac, and COURTsync, a court security and efficiency application, described below.

Number of Users and Corporate History

As of December 31, 2015, the total number of operational customers on the COPsync Network was 657, including 616 law enforcement agency customers and 847 subscribers to COPsync911. The reach of the COPsync Network is now especially broad in Texas with 525 law enforcement agencies, including 123 of the 254 sheriff’s offices in Texas.  Furthermore, we currently have at least one subscriber using the COPsync Network in approximately 79% of Texas counties.  
 
To date, our COPsync Network service has successfully submitted, processed and relayed over 15,800,000 officer initiated information requests.  On average, our service is returning responses to our customers in less than 5 seconds, well within the 32 second average NCIC 2000 standard for mobile clients. 
 
We were incorporated in Delaware in October 2006, and operated with nominal or no assets or operations until 2008.  We acquired the predecessor-in-interest to our business, PostInk Technology, LP, a Texas limited partnership, in April 2008 and began realizing revenues from operations in the fourth quarter of 2008.
 
Business Model
 
We deliver the COPsync Network and the COPsync911 threat alert service via a “software as a service” (SaaS), a subscription-based business model, whereby our customers subscribe to use the COPsync Network and the COPsync911 service for a specified term.  The subscription fees are typically paid annually at the inception of each year of service.  Our business model is: to obtain subscribers to use our services; achieve a high subscription renewal rate from those subscribers; and grow our revenue through a combination of acquiring new subscribers and obtaining renewals from existing subscribers.  Pertinent attributes of our business model include the following:
 
 ●
 We have incurred and will continue to incur material research and development costs to continue to build out our infrastructure and add new features and functionality to our offerings.
   
 We incurred start-up costs to establish our services and continue to incur recurring fixed costs to maintain our services.
   
 We acquire subscribers and bring them onto our services, which requires variable acquisition costs related to sales, installation and deployment.
   
 We recruit subscribers with the goal of reaching a level of aggregate subscriber payments that exceeds our fixed (and variable) recurring service costs.
   
 We seek to maintain a high renewal rate among existing subscribers.
   
 We augment these recurring revenues with product revenues from sales of our VidTac law enforcement in-car video system.
 
Assuming that we are successful in obtaining new subscribers of our services, as well as retaining high renewal rates of existing subscribers, we anticipate that the recurring nature of our subscription model will result in annually recurring, sustainable and predictable cash flow and revenue growth, year-over-year.  However, there is no assurance that we will be successful in implementing our business model and achieving our operational and financial objectives.
 

Our Products
 
COPsync Network
 
As described above, the COPsync Network is a real-time mobile information sharing and communication network.
 
Information Sharing Replaces Agency “Information Silos”
 
State and local law enforcement agencies traditionally operate in information “silos.”  Information about criminals and criminal activity known to one law enforcement agency is typically contained only in that particular agency’s database and is not shared or made known to other agencies, even those that are geographically proximate.  The only exceptions to these information silos are the FBI National Crime Information Center (NCIC) and each state’s law enforcement telecommunications system (LETS).  However, we believe that these available databases have limited value because they only provide adjudicated information, such as certain warrant issuances, convictions or prison sentences.  These databases do not provide non-adjudicated information, such as whether an individual has made a threat against law enforcement, is a known gang member, has been questioned for suspicious activity, or is known to carry a weapon.  Moreover, the NCIC and the LETS information is typically transmitted via radio from the local dispatch office for those agencies that do not have in-vehicle computers. 
 
The COPsync Network gives patrol officers in-car, real-time, access to the adjudicated NCIC and LETS data, EPIC data, and non-adjudicated data from other agencies and officers using the COPsync Network, regardless of the type of computer infrastructure used by the other agencies.  We believe that we are the only provider in the United States whose primary business objective is to connect law enforcement agencies for this purpose. 
 
Real-Time Communication Replacing Virtually No Communication Between Agencies 
 
Today, patrol officers typically cannot communicate in real-time with officers from other agencies because their radios are not interoperable.  Thus, officers have no ability to advise other agencies in real-time of “officer needs assistance” situations, BOLOs, child abductions, robberies or other crimes in progress. 
 
The COPsync Network allows agencies and officers to communicate with each other in real time through instant messaging (computer to computer) or SMS (computer to cell phone).  This feature enables the virtually instantaneous communication and transmission of information to an individual officer, agency, county, state or even the entire country – assuming the recipient is using the COPsync Network. 
 
Electronic Tools Replacing Pen and Paper
 
Historically time-consuming processes associated with manually documenting traffic citations, arrest reports and the like have been replaced with COPsync’s 21st century electronic tools designed to replace pen and paper. These electronic tools are designed to automate this labor-intensive process and enhance patrol officer efficiency.  For example, the average DUI arrest in the State of Texas takes between 3.5 and 4.0 hours to process, in part because of the many required handwritten forms involved.  Using the COPsync Network, an officer can complete the paperwork for a DUI arrest in a fraction of the time.  Additionally, routine traffic stops can also be processed much quicker and citations can be electronically transmitted to the court records management system for processing using the COPsync Network.
 
COPsync911 Threat Alert Service
 
As described above, the COPsync911 threat alert service enables persons to instantly and silently send emergency alerts directly to the five closest law enforcement officers in their patrol vehicles and the local 911 dispatch center with the mere click of an icon.  Features of the COPsync911 threat alert service include:
 
 
·
Persons can send emergency alerts directly to the five closest law enforcement officers’ dashboard computers while simultaneously alerting the 911 law enforcement dispatch center. 
 
 
·
Text alerts are simultaneously sent to others within the targeted location and all officers in the area that subscribe to the COPsync Network. 
 
 
·
Once triggered, a crisis communication portal is established among the person sending the alert, the local 911 dispatch center and the responding officers – all within the span of approximately two seconds. 
 
 
·
This crisis communication portal enables all parties to communicate directly and in real-time as the responding officers make their way to the scene. 
 
 
 
 
·
Subsequent alerts sent from the scene by others are automatically added to the initial crisis communication portal, thus providing law enforcement responders real-time situational awareness information. 
 
 
·
Responding officers are able to view a diagram of the school or other facility and a map of its physical location through the crisis communication portal.
 
COURTsync System
 
The COURTsync service enables judges and court personnel to instantly send emergency alerts directly to the closest law enforcement officers in their patrol vehicles and to the local 911 dispatch center, from any computer within the facility. Court personnel are also able to query federal law enforcement databases and databases pertaining to officer safety and dangerous persons. The COURTsync system ensures a new level of protection for judges and court personnel via the following features:
 
· In the event of a courthouse threat, panic alerts can be activated via Microsoft Windows court computers or mobile device and sent directly to the five geographically closest officers in their patrol cars.

· The alerts simultaneously inform the 9-1-1 dispatch center, which allows unified communication among 9-1-1 dispatch, the court, officers, EMS and fire department.
 
· Court personnel are able to query federal law enforcement databases and databases pertaining to officer safety and dangerous persons.

Additionally, COURTsync utilizes our WARRANTsync system to give patrol officers utilizing our COPsync Network access to Class C warrant information from the court, enabling them to collect warrant fees for the court. The WARRANTsync warrant notification/clearing system module includes the following features:

· Audibly informs the officer of outstanding Class C warrants after the officer runs a driver’s license during a routine traffic stop.

· Sends a message to the court-designated warrant custodian to verify that the Class C warrant is still valid, with information then relayed back to the officer.
 
· Allows the officer to issue a warning or make an arrest for the outstanding Class C warrant, and in the future the service will provide the officer the option to collect fines and fees for the warrant as permitted by Texas HB 121 in 2015.

VidTac In-Vehicle Video System

Software Driven, Digital In-car Video System

We believe that our VidTac in-vehicle video system is the nation’s only 100% digital, high performance, software-driven video system designed for law enforcement.  Typical in-vehicle video systems are “hardware centric” DVR-based systems.  The video capture, compression and encryption of the video stream is all performed by the DVR.  High-end digital DVR-based systems are expensive, with an estimated price in excess of $5,000 per system.  These DVR-based video systems are typically replaced, at the same expensive price point every three to four years as new patrol vehicles are placed into service.

We believe that our VidTac system is price advantageous vis-a-vis other high-end video systems, since we are offering the VidTac system at a much lower price than the average price of the DVR-based video systems.   Moreover, since our system is software based, most maintenance fixes and updates can be automatically “pushed” to the users, thus avoiding the need for an on-site maintenance visit in many cases.
 
Sales and Marketing

We sell our products and services through direct sales efforts and indirectly through distributors and resellers.  Virtually all of our sales to-date have been derived from our direct sales efforts.  However, we continue our efforts to establish a network of indirect sales channels.  We have several distributors and resellers for the COPsync Network and COPsync911 threat alert service and a number of resellers for the VidTac system.  We are working with these indirect sales channels to establish processes and systems and otherwise enable them to become a more effective sales channel for our product offerings.
 
 
Research and Development
 
Total research and development expenses for the years ended December 31, 2015 and 2014 were $1,616,744 and $1,825,786, respectively.  The decrease between years was principally due to our decision to cut-back on the scalability project in the second quarter of 2015 because of financial constraints.  The expenses incurred in 2015 as well as 2014 were principally devoted to the continued development and refinement of our COPsync911 threat alert service, our VidTac system, and development efforts to enhance the scalability of our COPsync Network and COPsync911 service offerings.  COPsync911 was launched in the second quarter of 2013.  In 2016, we anticipate these expenses increasing as we redeploy additional resources to our scalability program involving our COPsync Network and COPsync911 service offerings.
 
Competition

We believe that there is no direct competition to our COPsync Network.  We believe that we provide the only law enforcement network that provides real-time access to both adjudicated and non-adjudicated law enforcement databases, plus real-time data sharing and communication across agency jurisdictional boundaries, directly to the patrol car and to all subscribing agencies at the point of incident.  We have designed our system to be “vendor neutral,” meaning it is designed to be used in conjunction with systems of other law enforcement technology vendors.  

Although there are a number of vendors providing records management, jail management, court management and computer aided dispatch technology systems to law enforcement agencies, we do not view these vendors as our competitors, since our objective is not to interfere with their customer relationship or replace them.  Our objective is to provide their customers with the platform needed to connect to other law enforcement agencies.  We aspire to be the vendor that connects all law enforcement agencies, regardless of vendor.

There are a number of competitors to our COPsync911 threat alert service, including merely calling “911,” panic buttons, and alarm monitoring services.  We do not believe any of these competitors offer the features and functionality provided by the COPsync911 service.

There are many in-vehicle law enforcement video system vendors, including Coban, Digital Ally, MobileVision, Motorola, and Watchguard Video, whose products compete with our VidTac product offering.  We believe that we will be able to capture a reasonable share of the law enforcement in-vehicle video market with our VidTac product due to the following attributes, among others:
 
 
·
Our VidTac system possesses features and functionality that other existing video systems do not possess.  
 
 
·
We are offering our VidTac system at a much lower price point than the average price of the competing DVR-based video systems.  
 
 
·
Since our system is software based, most maintenance fixes and updates can be automatically “pushed” to the users, thus avoiding the need for the delay and inconvenience of on-site maintenance or the return of the system for repair.
 
Intellectual Property
 
We hold a patent (patent no. 9,047,768) entitled, “Method, System and Computer Program for Law Enforcement,” which is utilized in the COPsync Network. This patent, which expires in August 2032, is for a method performed by an information handling system comprising a network connection for communicating information about at least one subject, wherein the subject includes at least one of a subject vehicle or a subject person. We also hold a patent (patent no. 9,143,670) entitled, “Video Capturing System Including Two Independent Image Sensors,” which is utilized in our VidTac product. This patent is for an in-vehicle video system comprising a forward-looking camera system that includes two independent image sensors and associated digital signal processors for processing imagery received from the respective independent image sensors. We also have three pending patents in application.
 
The federal trademark “COPSYNC” is held by a third party, but we dispute the validity of the registered holder’s rights in the mark. If the third party were to assert a trademark infringement claim against us, we could incur substantial costs and expenses of defending the claim and could be forced to relinquish our use of the “COPSYNC” mark and adopt a different trademark. This could cause a loss of the goodwill we have accumulated with respect to the sales of our products and services using the “COPSYNC” mark. We do, however, hold a Texas trademark registration for the mark “COPSYNC,” which expires in May 2018, and can be renewed for subsequent five-year terms as long as the mark remains in use. We also have a trademark registration application pending with the State of Texas for the mark “COPSYNC 911.” Additionally, we hold federal trademark registrations for the marks “VIDTAC” and “WARRANTSYNC,” which expire in December 2022 and January 2024, respectively, and can be renewed for subsequent ten-year terms as long as the marks remain in use.
 
  
Employees
 
We had 48 full-time employees as of March 15, 2016, a substantial majority of whom are non-management personnel.  None of our employees are represented by a labor union.  We have not experienced any work stoppages and believe that we have satisfactory employee relations.

Government Regulation

Our business is subject to regulation by various federal and state governmental agencies.  Such regulation includes the anti-trust regulatory activities of the Federal Trade Commission, the Department of Justice (CJIS Division), the consumer protection laws of the Federal Trade Commission, the product safety regulatory activities of the U.S. Consumer Products Safety Commission and environmental regulation by a variety of regulatory authorities in each of the areas in which we conduct business.  With regards to the compliance of environmental regulations, our cost of such compliance is minimal.  In addition, our customers and potential customers are all governmental entities.  As a result, their ability to purchase our product could be subject to governmental regulation at the federal, state and local levels. 
 
ITEM 1A.  RISK FACTORS

There are numerous risks affecting our business, some of which are beyond our control.  An investment in our common stock involves a high degree of risk and may not be appropriate for investors who cannot afford to lose their entire investment.  If any of the following risks actually occur, our business, financial condition or operating results could be materially harmed.  This could cause the trading price of our common stock to decline, and you may lose all or part of your investment.  In addition to the risks outlined below, risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations.  Potential risks and uncertainties that could affect our operating results and financial condition include, without limitation, the following:

RISK FACTORS RELATING TO OUR OPERATIONS

We have experienced losses since our founding. A failure to obtain profitability and achieve consistent positive cash flows would have a significant adverse effect on our business.
 
We have incurred operating losses since our inception, including a reported net loss of $6,414,230 and $4,223,467 for our fiscal year ended December 31, 2015 and December 31, 2014, respectively. Cash used in operating activities for the fiscal year ended December 31, 2015 was $3,354,898. In fiscal 2014, we used $2,900,870 of cash in our operating activities. We expect to continue to incur operating losses through at least fiscal 2016. As of December 31, 2015, we had an accumulated deficit of $29,987,131, cash and cash equivalents of $8,295,310, working capital of $5,059,800 and stockholders’ equity of $3,757,069. To date, we have funded our operations principally through the sale of our capital stock and debt instruments, as well as contributions of capital to our predecessor, and cash generated from operations. We will need to generate significant revenues to achieve profitability, and we cannot assure you that we will ever realize revenues at such levels. If we do achieve profitability in any period, we may not be able to sustain or increase our profitability on a quarterly or annual basis.
 
We may require additional financing to support our operations. Such financing may only be available on disadvantageous terms, or may not be available at all. Any new equity financing could have a substantial dilutive effect on our existing stockholders.
 
At December 31, 2015, we had cash and cash equivalents of $8,295,310, working capital of $5,059,800 and an accumulated deficit of $29,987,131. While we closed a $10.6 million underwritten public offering on November 18, 2015, our cash position may decline in the future, and we may not be successful in maintaining an adequate level of cash resources. Our key vendors have accommodated us by extending payment terms for our outstanding accounts payables, but we cannot assure you that these accommodations will continue. If our key vendors begin demanding standard payment terms, we may not be able to pay our accounts payable in a timely fashion, and we may lose our relationships with our key vendors.
 
We may be required to seek additional debt or equity financing in order to support our growing operations. We may not be able to obtain additional financing on satisfactory terms, or at all, and any new equity financing could have a substantial dilutive effect on our existing stockholders. If we cannot obtain additional financing, we will not be able to achieve the sales growth that we need to cover our costs, and our results of operations would be negatively affected.
 
 
We cannot predict our future results because we have a limited operating history.
 
Our predecessor, which began our business, was formed in January 2005. We began realizing revenues from operations in the fourth quarter of 2008. Given our limited operating history, it may be difficult for you to evaluate our performance or prospects. You should consider the uncertainties that we may encounter as a company that should still be considered an early stage company. These uncertainties include:
 
 
·
our ability to market and sell the COPsync Network and other products for a profit;
 
 
·
our ability to recruit and retain skilled personnel; and
 
 
·
our evolving business model.
 
If we are not able to address successfully some or all of these uncertainties, we may not be able to expand our business, compete effectively or achieve profitability.
  
If we are unable to develop and generate additional demand for our services or products, we will likely suffer serious harm to our business.
 
We have invested significant resources in developing and marketing our services and products. The demand for, and market acceptance of, our services and products is subject to a high level of uncertainty. Adoption of new software and hardware solutions, particularly by law enforcement agencies, which have historically relied upon more traditional means of communication, requires a broad acceptance of substantially different methods of conducting business and collecting and sharing information. Our services and products are often considered complex and often involve a new approach to the conduct of business by our customers. As a result, intensive marketing and sales efforts may be necessary to educate prospective customers regarding the uses and benefits of our services and products in order to generate additional demand. The market for our services and products may weaken, competitors may develop superior offerings or we may fail to develop acceptable solutions to address new market conditions. Any one of these events could have a material adverse effect on our business, results of operations, cash flow and financial condition.
 
We rely predominantly on sales to governmental entities, and the loss of a significant number of our contracts would have a material adverse effect on our business, results of operations and cash flows.
 
Our sales are predominantly derived from contracts with agencies of local governments. Selling to government entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will successfully sell our products to such governmental entity. In order to sell to government entities, we may be required to obtain approval and/or certification by such government entities, and may require the maintenance of certain security clearances for facilities and employees, which can entail administrative time and effort possibly resulting in additional costs and delays. Additionally, such approval and/or certification processes may change, or more stringent processes may be developed, which may restrict our ability to continue to sell to government entities. Further, our sales, and results of operations, may be adversely affected by the curtailment of these governmental agencies’ use of technology, including curtailment due to governmental budget reductions. Governmental budgets available to purchase our software services and products could be negatively affected by several factors, including events we cannot foresee, such as local government budget shortfalls, federal and state government budget limitations resulting in the curtailment of grant programs that would otherwise cover the purchase of our services, current or future economic conditions, a change in spending priorities, and other related exigencies and contingencies. A significant decline in or redirection of local law enforcement expenditures in the future could result in a decrease to our sales, earnings and cash flows.
 
Undetected errors or failures in our software could result in loss or delay in the market acceptance for our products or lost sales.
 
Because our software services and products, and the environments in which they operate, are complex, our software and products may contain errors that can be detected at any point in its lifecycle. While we continually test our services and products for errors, errors may be found at any time in the future. Detection of any significant errors may result in, among other things, loss of, or delay in, market acceptance and sales of our services and products, diversion of development resources, injury to our reputation, increased service and warranty costs, license terminations or renegotiations or costly litigation. Additionally, because our services and products support or rely on other systems and applications, any software or hardware errors or bugs in these systems or applications may result in errors in the performance of our service or products, and it may be difficult or impossible to determine where the error resides.
 
 
We may not be competitive, and increased competition could seriously harm our business.
 
Relative to us, some of our current competitors or potential competitors of our COPsync 911 threat alert service, COURTsync service or VidTac in-vehicle video system may have one or more of the following advantages:
 
 
·
longer operating histories;
 
·
greater financial, technical, marketing, sales and other resources;
 
·
positive cash flows from operations;
 
·
greater name recognition;
 
·
a broader range of products to offer;
 
·
a larger installed base of customers; and
 
·
competitive product pricing.
 
Although no single competitive factor is dominant, current and potential competitors of our COPsync 911 threat alert service, COURTsync service or VidTac in-vehicle video system may establish cooperative relationships among themselves or with third parties to enhance their offerings that are competitive with our products and services, which may result in increased competition. Although to date we have not identified any direct competitors for our COPsync Network, competitors may develop in the future and such competitors may have greater resources or name recognition than we currently enjoy. As a result of these and other factors, we may be unable to compete successfully with our existing or new competitors.
  
Sales to most of our target customers involve long sales and implementation cycles, which may cause revenues and operating results to vary significantly.
 
We sell our services and products primarily to local government agencies and school districts. A prospective customer’s decision to purchase our services or products may often involve lengthy evaluation and product qualification process. Throughout the sales cycle, we anticipate often spending considerable time educating and providing information to prospective customers regarding the use and benefits of our services and products. Budget constraints and the need for multiple approvals within these organizations may also delay the purchase decision. Failure to obtain the timely required approval for a particular project or purchase decision may delay the purchase of our services or products. As a result, we expect that the sales cycle for our services and products will typically exceed 180 days, depending on the availability of funding to the prospective customer. These long cycles may cause delays in any potential sale, and we may spend a large amount of time and resources on prospective customers who decide not to purchase our services or products, which could materially and adversely affect our business.
 
Additionally, many of our services and products are designed for the law enforcement community, which requires us to maintain a sales force that understands the needs of this profession, engages in extensive negotiations and provides high-level support to complete sales. If we do not successfully market our services and products to these targeted customers, our operating results will be below our expectations and the expectations of investors and market analysts, which would likely cause the price of our common stock to decline.
 
Our products, offerings and website may be subject to intentional disruption that could adversely impact our reputation and future sales.
 
We collect and retain large volumes of criminal justice information, including law enforcement telemetry data, non-adjudicated criminal justice information and other personally identifiable information that our various products and systems collect, process, summarize and report. The integrity and protection of our data is critical to our business and our customers have the expectation that we will adequately protect this information. The federal Criminal Justice Information Security (CJIS) Policy and additional requirements imposed on us by the law enforcement industry pertaining to information security and privacy are increasingly demanding and continue to evolve. Maintaining compliance with these requirements may increase our operating costs and adversely impact our ability to release new products and services to our customers. Furthermore, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss, fraudulent or unlawful use of our data, which could harm our reputation or result in remedial and other costs, fines or lawsuits. Our business could be subject to significant disruption, and we could suffer monetary and other losses and reputational harm, in the event of such incidents and claims.
 
 
We will not be able to develop or continue our business if we fail to attract and retain key personnel.
 
Our future success depends on our ability to attract, hire, train and retain a number of highly skilled employees and on the service and performance of our senior management team and other key personnel. The loss of the services of our executive officers or other key employees could adversely affect our business. Competition for qualified personnel possessing the skills necessary to implement our strategy is intense, and we may fail to attract or retain the employees necessary to execute our business model successfully. We have obtained “key person” life insurance policies covering two of our employees.
 
Our success will depend to a significant degree upon the continued contributions of our key management, engineering and other personnel, many of whom would be difficult to replace. In particular, we believe that our future success is highly dependent on Ronald A. Woessner, our chief executive officer, Russell Chaney, our founder and a member of the board, and Shane Rapp, our founder and president. If Messrs. Woessner, Chaney or Rapp, or any other key members of our management team, leave our employment, our business could suffer and the share price of our common stock and warrants would likely decline. Although we have entered into an employment agreement with each of Messrs. Chaney and Rapp, either of them may voluntarily terminate his services at any time. We do not currently have an employment agreement with Mr. Woessner and do not expect to enter into such agreement.
 
Furthermore, our sales success is dependent on our sales leadership and our sales representatives. We continue to experience turnover in our sales organization, including at the executive level. Our current senior sales executive is relatively new to the company. In 2014 and 2015, we hired new sales personnel to fill various vacancies and increased the size of our sales team. Our current sales team is less experienced in the law enforcement space than our previous sales team. Consequently, our sales volumes could suffer until our new sales personnel become fully integrated.
 
If we do not protect our proprietary information and prevent third parties from making unauthorized use of our products and technology, our financial results could be harmed.
 
Most of our software and underlying technology is proprietary. We seek to protect our proprietary rights through a combination of confidentiality agreements and procedures and through copyright, patent, trademark, and trade secret laws. However, all of these measures afford only limited protection and may be challenged, invalidated, or circumvented by third parties. Any patent licensed by us or issued to us could be challenged, invalidated or circumvented or rights granted there under may not provide a competitive advantage to us. Furthermore, patent applications that we file may not result in issuance of a patent or, if a patent is issued, the patent may not be issued in a form that is advantageous to us. Despite our efforts to protect our intellectual property rights, others may independently develop similar products, duplicate our products or design around our patents and other rights. In addition, it is difficult to monitor compliance with, and enforce, our intellectual property on a cost-effective manner.
 
Third parties claiming that we infringe their proprietary rights could cause us to incur significant legal expenses and prevent us from selling our products and services.
 
From time to time, we might receive claims that we have infringed the intellectual property rights of others, including claims regarding patents, copyrights, and trademarks. Because of constant technological change in the segments in which we compete, the extensive patent coverage of existing technologies, and the rapid rate of issuance of new patents, it is possible that the number of these claims may grow. In addition, former employers of our former, current, or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of these former employers. Any such claim, with or without merit, could result in costly litigation and distract management from day-to-day operations. If we are not successful in defending such claims, we could be required to stop selling, delay shipments of, or redesign our products, pay monetary amounts as damages, enter into royalty or licensing arrangements, or satisfy indemnification obligations that we have with some of our customers. We cannot assure you that any royalty or licensing arrangements that we may seek in such circumstances will be available to us on commercially reasonable terms or at all. We may incur significant expenditures to investigate, defend and settle claims related to the use of technology and intellectual property rights as part of our strategy to manage this risk.
 
In addition, we license and use software from third parties in our business. These third party software licenses may not continue to be available to us on acceptable terms, or at all, and may expose us to additional liability. This liability, or our inability to use any of this third party software, could result in shipment delays or other disruptions in our business that could materially and adversely affect our operating results.
 
The federal trademark “COPSYNC” is held by a third party. If the third party were to assert a trademark infringement claim against us, we could incur substantial costs and expenses in defending the claim and could be forced to relinquish our use of the “COPSYNC” mark and adopt a different trademark. This could cause a loss of the goodwill we have accumulated with respect to the sales of our products and services using the “COPSYNC” mark and could have a material adverse effect on our business and operating results.
 
 
We may become involved in litigation which could harm the value of our business.

Because of the nature of our business, there is a risk of litigation from customers, suppliers, employees, partners, stockholders and others. Litigation can cause us to incur substantial expenses whether or not we prevail, which will add to our costs and may affect the capital available for our operations. An increase in our costs may cause us to increase the prices we charge for our products and services, which may lead  our customers to seek alternatives to our products. In such event, our revenues will decrease and we may be forced to curtail our operations.
 
Periods of sustained economic adversity and uncertainty could negatively affect our business, results of operations and financial condition.
 
Demand for our services and products depend in large part upon the level of capital and maintenance expenditures by many of our customers. Economic downturns result in lower tax receipts for municipalities, counties and school districts, hence, lower budgets for our customers and potential customers. Lower budgets could have a material adverse effect on the demand for our services and products, and our business, results of operations, cash flow and overall financial condition would suffer.
 
Disruptions in the financial markets, such as what occurred in 2008, may adversely impact the availability and cost of credit for our potential customers, which could result in the delay or cancellation of customer purchases. In addition, the disruptions in the financial markets may have an adverse impact on regional and world economies and credit markets, which could negatively impact the availability and cost of capital for us and our customers. These conditions may reduce the willingness or ability of our customers and prospective customers to commit funds to purchase our services or products, or their ability to pay for our services after purchase. These conditions could result in bankruptcy or insolvency for some customers, which would impact our revenue and cash collections. These conditions could also result in pricing pressure and less favorable financial terms in our contracts and our ability to access capital to fund our operations.
 
RISK FACTORS RELATING TO OUR COMMON STOCK
 
We have a substantial number of authorized common and preferred shares available for future issuance that could cause dilution of our stockholders’ interest and adversely impact the rights of holders of our common stock.
 
We have a total of 50,000,000 shares of common stock and 1,000,000 shares of preferred stock authorized for issuance. As of December 31, 2015, we had 41,637,097 shares of common stock and 900,000 shares of preferred stock available for issuance. As of December 31, 2015, we had reserved 4,817,198 shares of our common stock for issuance upon the exercise of outstanding options and warrants, 2,000 shares of our common stock for issuance upon conversion of outstanding shares of our preferred stock, 2,728 shares of our common stock upon conversion of an outstanding convertible note, 260,206 shares of our common stock to be issued for a series of conversions involving Series B Preferred Stock and Notes Payable, as well as stock grants issued to third-party service providers. Additionally, we have 157,900 additional shares available for future grants under our stock incentive plan. We may seek financing that could result in the issuance of additional shares of our capital stock and/or rights to acquire additional shares of our capital stock. We may also undertake acquisitions that result in issuances of additional shares of our capital stock. Those additional issuances of capital stock would result in a significant reduction of your percentage interest in us. Furthermore, the book value per share of our common stock may be reduced. This reduction would occur if the exercise price of any issued warrants, the conversion price of any convertible notes or the conversion ratio of any issued preferred stock is lower than the book value per share of our common stock at the time of such exercise or conversion.
 
The addition of a substantial number of shares of our common stock into the market or by the registration of any of our other securities under the Securities Act may significantly and negatively affect the prevailing market price for our common stock. The future sales of shares of our common stock issuable upon the exercise of outstanding warrants and options may have a depressive effect on the market price of our common stock, as such warrants and options would be more likely to be exercised at a time when the price of our common stock is greater than the exercise price.
  
There may not be an active market for shares of our common stock, and we can provide no assurance that our common stock will continue to meet NASDAQ listing requirements, which may cause our shares to trade at a discount and may make it difficult for you to sell your shares.
 
Our common stock is listed on The NASDAQ Capital Market under the symbol “COYN.” However, no assurance can be given that an active trading market for our common stock will develop and continue. As a result, you may find it more difficult to purchase, dispose of and obtain accurate quotations as to the value of our common stock and warrants.  
   
 
If we are unable to continue to meet NASDAQ listing requirements, our common stock could be delisted from The NASDAQ Capital Market. If our common stock were to be delisted from The NASDAQ Capital Market, our common stock could continue to trade on the OTCQB or similar marketplace following any delisting from The NASDAQ Capital Market. Any such delisting of our common stock could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and less coverage of us by securities analysts, if any. Also, if in the future we were to determine that we need to seek additional equity capital, it could have an adverse effect on our ability to raise capital in the public or private equity markets.
 
Our stock could be subject to volatility.
 
The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including:
 
 
·
actual or anticipated fluctuations in our quarterly and annual results;
 
·
changes in market valuations of companies in our industry;
 
·
announcements by us or our competitors of new strategies, significant contracts, acquisitions, strategic relationships, joint ventures, capital commitments or other material developments that may affect our prospects;
 
·
shortfalls in our operating results from levels forecasted by company management;
 
·
additions or departures of our key personnel;
 
·
sales of our capital stock in the future;
 
·
liquidity or cash flow constraints; and
 
·
fluctuations in stock market prices and volume, which are particularly common for the securities of emerging technology companies, such as us.
 
We may not pay dividends on our common stock in the foreseeable future.
 
We have not paid any dividends on our common stock. We may pay dividends in the future at the discretion of our board of directors. We are restricted from paying dividends on our common stock unless a dividend is paid on our Series A Preferred Stock in an amount equal to the amount of the dividends for all shares of our common stock into which each such share of Series A Preferred Stock could then be converted. We are unlikely to pay dividends at any time in the foreseeable future; rather, we are likely to retain earnings, if any, to fund our operations and to develop and expand our business. 

Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline.
 
Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, our stockholders may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our common stock.
  
ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
None. 

ITEM 2.  PROPERTIES
 
At December 31, 2015, our principal properties consisted of a leased facility in the Dallas area (approximately 7,000 square feet), where our research and development, sales and marketing, finance and administrative functions are located and a leased facility in New Braunfels, Texas (approximately 2,500 square feet), where our customer support and operational activities are located.  The Dallas area location is subject to a sixty-three-month lease expiring on November 30, 2020.  The New Braunfels facility is subject to a fifty-one-month lease expiring on August 31, 2018.  We believe our present facilities are adequate for our foreseeable needs.
 
 
ITEM 3.  LEGAL PROCEEDINGS
 
We are not currently involved in any material legal proceedings.  From time-to-time we anticipate we will be involved in legal proceedings, claims, and litigation arising in the ordinary course of our business and otherwise.  The ultimate costs to resolve any such matters could have a material adverse effect on our financial statements.  We could be forced to incur material expenses with respect to these legal proceedings, and in the event there is an outcome that is adverse to us, our financial position and prospects could be harmed.
 
ITEM 4.  MINE SAFETY DISCLOSURES

Not Applicable. 
 
 
PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES 
 
Beginning on November 13, 2015, our common stock began trading on The NASDAQ Capital Market under the symbols “COYN.” We have one class of common stock and one class of preferred stock.
 
Prior to November 13, 2015, our common stock was quoted on the OTCQB maintained by the OTC Market Group Inc. under the symbol “COYN.”  At that time, we had one class of common stock and two classes of preferred stock.

The following table shows the high and low sales price of our common stock on The NASDAQ Capital Market and high and low bids on the OTCQB prior to November 13, 2015 for each quarterly period during our fiscal years ended December 31, 2015 and 2014. The following high and low prices have been adjusted retroactively to reflect a 1-for-50 reverse stock split that we effected on October 15, 2015.
 
 
   
Price Range
 
Quarter Ending
 
High
   
Low
 
December 31, 2015
 
8.50
     
1.54
 
September 30, 2015
 
9.50
     
8.50
 
June 30, 2015
 
9.50
     
8.50
 
March 31, 2015
 
21.00
     
9.50
 
December 31, 2014
 
22.50
     
17.50
 
September 30, 2014
 
24.00
     
8.00
 
June 30, 2014
 
10.00
     
4.50
 
March 31, 2014
 
5.00
     
4.00
 

As of March 21, 2016, there were 235 holders of record of our common stock.

Dividend Policy
 
We have never paid cash dividends on our common stock. The payment of dividends on our common stock in the future will depend on our earnings, capital requirements, operating and financial condition and such other factors as our board of directors may consider appropriate. We are restricted from paying dividends on our common stock unless a dividend is paid on our Series A Preferred Stock in an amount equal to the amount of the dividends for all shares of our common stock into which each such share of Series A Preferred Stock could then be converted. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future. 

Recent Sales of Unregistered Securities

On December 15, 2015 we issued warrants to purchase an aggregate of 327,327 shares of our common stock, at an exercise price of $3.125, to 26 investors to replace warrants we previously issued to investors to purchase 200,307 shares of our common stock at an exercise price of $7.50. The original warrants were issued in a private placement exempt from registration under Rule 506, pursuant to which we entered into a registration rights agreement with the investors (the “Registration Rights Agreement”). In consideration for the additional warrants and reduction of the exercise price, the investors agreed to amend the Registration Rights Agreement to extend the deadline for us to register their shares and the shares issuable upon exercise of their warrants. Such issuances were exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act based on the warrants being issued to a limited number of financially sophisticated persons that were given access to information relevant to their decision. We had a substantive, pre-existing relationship with each of the persons and no general solicitation or advertising was involved.
 
ITEM 6.  SELECTED FINANCIAL DATA
 
Not Applicable.
 
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this report.

The information contained below may be subject to risk factors.  We urge you to review carefully the section “Risk Factors” above under Item 1A for a more complete discussion of the risks associated with an investment in our securities.  See “Special Note on Forward-Looking Statements and Risk Factors” above under Item 1.

We sell the services and products discussed above under “ITEM 1.  BUSINESS.” As noted above, most of our services are sold on a subscription basis to our customers who subscribe to use the service for a specified term. Our customers renew at a high-renewal rate, which produces recurring cash and recurring revenue, year-after-year.
 
Pertinent attributes of our subscription-based business model include the following:

 ●
 We have incurred and will continue to incur material research and development costs to continue to build out our infrastructure and add new features and functionality to our offerings.
   
 We have incurred start-up costs to establish our services and continue to incur recurring fixed costs to maintain our services.
   
 As we acquire subscribers and bring them onto our services, we experience variable acquisition costs related to sales, installation and deployment.
   
 We recruit subscribers with the goal of reaching a level of aggregate subscriber payments that exceeds our fixed (and variable) recurring service costs.
   
  ●
 We seek to maintain a high renewal rate among existing subscribers.
   
Assuming we are successful in obtaining new users of our services, as well as retaining high renewal rates of existing subscribers, we anticipate that the recurring nature of our subscription model will result in annually recurring, sustainable and predictable cash flow and revenue growth, year-over-year.  However, there is no assurance that we will be successful in implementing our business model and achieving our operational and financial objectives.

At December 31, 2015, the Company had cash and cash equivalents of $8,295,310, working capital of $5,059,800 and an accumulated deficit of $29,987,131.  The following factors are helping the Company manage its liquidity and enable it to progress its business towards cash-flow break-even, and ultimately profitability:  

(1)  Relative to our new order bookings, we signed service agreements for approximately $4,551,000 in new orders for the twelve-month period ended December 31, 2015, compared to approximately $4,500,000 in new orders for the comparable period in 2014.

(2)  On November 13, 2015, the Company’s stock and warrants commenced trading on The NASDAQ Capital Market under the symbols COYN and COYNW, respectively.  On November 18, 2015, the Company announced the closing of an underwritten public offering of 3,028,572 shares of common stock, and warrants to purchase up to an aggregate of 3,028,572 shares of common stock, at an offering price of $3.49 per share and $0.01 per warrant.  The warrants are immediately exercisable, have a per share exercise price of $3.125, and expire five years from the date of issuance.  The gross proceeds to COPsync from this offering was approximately $10.6 million before deducting $1.1 million of costs for the underwriting discount and other estimated offering expenses.  The Company also granted the underwriters a 45-day option to purchase up to an aggregate of 454,286 additional shares of common stock and/or up to 454,286 additional warrants to cover over-allotments, if any, of which the underwriters exercised their rights to purchase 440,420 additional warrants.

(3) On July 14, 2015, July 23, 2015 and August 10, 2015 we closed a private placement, in which we issued $1,795,000, in the aggregate, of convertible promissory notes and warrants to purchase Company common stock. The associated warrants have a per share exercise price of $3.125, are immediately exercisable for an aggregate of 527,634 shares of Company common stock, and expire five years from the date of issuance.
 
(4)  During 2015, a combination of debt instruments and vendor payables were converted into shares of the Company’s common stock, consisting of: (1) an aggregate principal amount of $895,101 of convertible debt being converted into 142,211 shares; (2) an aggregate principal amount of $675,250 of notes payable being converted into 139,364 shares; and (3) an aggregate amount of $236,265 of vendor payables being converted into 29,902 shares.
 
 
(5)  The Company continues to employ “just in time” principles in its procurement processes for third party hardware, meaning that it attempts to schedule delivery to the customer of the third party hardware that the Company sells immediately after it receives the hardware.  

(6)  We believe that we have the capability to reduce operating expenses, should circumstances warrant.
 
There can be no assurances that we will become cash flow positive and/or profitable without an additional infusion of capital. Further, there can be no assurances that such capital would be available on terms acceptable to us.
 
Critical Accounting Policies and Estimates
 
In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on revenue, income (loss) from operations and net income (loss), as well as the value of certain assets and liabilities on our balance sheet. The application of our critical accounting policies requires an evaluation of a number of complex criteria and significant accounting judgments by us.  Company management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.  We evaluate our estimates on a regular basis and make changes accordingly.  Senior management has discussed the development, selection and disclosure of these estimates.  Actual results may materially differ from these estimates under different assumptions or conditions.  If actual results were to materially differ from these estimates, the resulting changes could have a material adverse effect on our financial condition.

Our critical accounting polices include the following:

 
a.                     Revenue Recognition

Our business focus is to sell subscriptions to the COPsync software as a service, which is a real-time, in-car information sharing, communication and data interoperability network for law enforcement agencies.  We refer to this service as The COPsync Network.  The agencies subscribe to the service for a specified period of time (usually for twelve to forty-eight months), for a specified number of officers per agency, and at a fixed subscription fee per officer.
 
In the process of selling the subscription service, we also sell computers and computer-related hardware (“hardware”) used to provide the in-vehicle service should the customer not already have the hardware, or wants to upgrade their existing hardware, as well as hardware installation services, the initial agency and officer set-up and training services and, sometimes, software integration services for enhanced service offerings.
 
Our most common sales are:
 
1) for new customers – a multiple-element arrangement involving (a) the subscription fee, (b) integration of the COPsync software and a hardware appliance (where the hardware and software work together to deliver the essential functionality of the service) to include related services for hardware installation and agency and officer set-up and training and (c) if applicable, software integration services for enhanced service offerings; and
 
2) for our existing customers – the subscription fees for the annual renewal of an agency’s COPsync subscription service, upon the completion of the agency’s previous subscription period.
 
We recognize revenue when all of the following have occurred: (1) we have entered into a legally binding arrangement with a customer resulting in the existence of persuasive evidence of an arrangement; (2) delivery has occurred, evidenced when product title transfers to the customer; (3) customer payment is deemed fixed or determinable and free of contingencies and significant uncertainties; and (4) collection is probable.
 
Revenue specific to hardware is recognized once hardware has been delivered to the customer. Installation and/or officer training fees are recognized as revenue, if and when provided.  This policy represents a change in estimate in the amount of deferred revenue recognized on hardware sales.  Further, the hardware has to be useable by the customer for general business purposes and possibly unrelated to the COPsync service should they need to use the hardware for general businesses.  If the hardware is not useable, then no revenue recognition can be taken.  If a portion of the hardware has been installed at the end of the reporting period, then along with the hardware recognition, a prorated portion of the installation fees will be recognized as of the date of such installation.  Any remaining revenue items will be deferred until all of the hardware is finished being installed and officer training completed.  The warranty on third party hardware is provided by the manufacturer only.
 
 
The sale of the hardware and related services for hardware installation and agency and officer set-up and training are reported as “Hardware, installation and other revenues” in our statement of operations.  The sale of the VidTac product offering is considered a hardware sale and is reported in this revenue classification.  
 
The subscription fees and software integration services are reported as “software license/subscriptions revenues” in our statement of operations.  The subscription fees include termed licenses for the contracted officers to have access to the service and the right to receive telephonic customer and technical support, as well as software updates, during the subscription period.  Support for the hardware is normally provided by the hardware manufacturer.
 
The sale of the WARRANTsync and COPsync911 product offerings are reported in “software license/subscriptions revenues”.  The service for each of these products consist of two elements: (1) an integration element, and (2) a subscription element, both of which are recognized ratably over the service period upon customer acceptance.  WARRANTsync represents a very small portion of our revenues and could be viewed as an enhancement feature to the COPsync Network.
 
The receipt and acceptance of an executed customer’s service agreement, which outlines all of the particulars of the sale event, is the primary method of determining that persuasive evidence of an arrangement exists.
 
Delivery generally occurs for the different elements of revenue as follows:
 
(1) For multiple-element arrangements involving new customers – contractually the lesser period of time of sixty days from contract date or the date officer training services are completed.  We request the agency to complete a written customer acceptance at the time training is completed, which will override the contracted criteria discussed immediately above.
 
(2) The subscription fee – the date the officer training is completed and written customer acceptance is received.
 
(3) Software integration services for enhanced service offerings – upon the completion of the integration efforts and verification that the enhanced service offering is available for use by the agency.
 
Fees are typically considered to be fixed or determinable at the inception of an arrangement, generally based on specific services and products to be delivered pursuant to the executed service agreement. Substantially all of our service agreements do not include rights of return or acceptance provisions.  To the extent that agreements contain such terms, we recognize revenue once the acceptance provisions or right of return lapses.  Payment terms to customers generally range from net “upon receipt of invoice” to “net 30 days from invoice date.”  Beginning in 2013, we adopted a policy of requesting customers purchasing a significant amount of hardware to prepay for the hardware at the time the equipment was ordered from our suppliers.  These prepayments are recorded on our balance sheet as current deferred revenues.
 
We assess the ability to collect from its customers based on a number of factors, including credit worthiness of the customer and the past transaction history with the customer.  If the customer is not deemed credit worthy, we defer all revenue from the arrangement until payment is received and all other revenue recognition criteria have been met. With the exception of sales to resellers, all of our customers are local or state governmental agencies.
 
As indicated above, some customer orders contain multiple elements.  We allocate revenue to each element in an arrangement based on relative selling price.  The selling price for a deliverable is based on its vendor specific objective evidence (“VSOE”), if available, third party evidence ("TPE"), if VSOE is not available, or our best estimate of selling price ("ESP"), if neither VSOE nor TPE is available.  The maximum revenue we recognize on a delivered element is limited to the amount that is not contingent upon the delivery of additional items.  Many of our service agreements contain grants (or discounts) provided to the contracting agency.  These grants or discounts have been allocated across all of the different elements based upon the respective, relative selling price.
 
We determine VSOE for subscription fees for the initial contract period based upon the rate charged to customers on a stand-alone subscription service.  VSOE for renewal pricing is based upon the stated rate for the renewed subscription service, which is stated in the service agreement or contract entered into.  Historically, the renewal rate has been equal to or slightly higher than the stated rate in the original contract; however, we have experienced in fiscal year 2015, a lower renewal rate for certain, renewing customers as a result of their budgetary constraints.  The renewal rate is administered on a customer-by-customer basis.  Subscription fee revenue is recognized ratably over the life of the service agreement. 
 
We have determined that the selling price of hardware products include the related services for hardware installation and agency and officer set-up and training, as well as integration services for enhanced service offerings, which are sold separately and, as a result, it has VSOE for these products.
 
 
For almost all of our new service agreements, as well as renewal agreements, billing and payment terms are agreed to up front or in advance of performance milestones.  These payments are initially recorded as deferred revenue and subsequently recognized as revenue as follows:
 
(1) Integration of our software and a hardware appliance (where the hardware and software work together to deliver the essential functionality of the service) to include related services for hardware installation and agency and officer set-up and training – immediately upon delivery.
 
(2) The subscription fee – ratably over the contracted subscription period, commencing on the delivery date.
 
(3) Software integration services for enhanced service offerings – immediately upon our completion of the integration and verification that the enhanced service is available for the agency’s use.
 
(4) Renewals – ratably over the renewed subscription or service period commencing on the completion of the previous subscription or service period.

 
b.                     Software Development Costs

Certain software development costs incurred subsequent to the establishment of technological feasibility may be capitalized and amortized over the estimated lives of the related products.  Through mid-year 2010, we capitalized certain software development costs accordingly.

We determined technological feasibility to be established upon completion of (1) product design, (2) detail program design, (3) consistency between product and program design and (4) review of detail program design to ensure that high risk development issues have been resolved.  Upon the general release of the COPsync service offering to customers, development costs for that product were amortized over fifteen years based on management’s then estimated economic life of the product.  

We have not capitalized any of the software development efforts associated with our new product offerings, WARRANTsync, VidTac and COPsync911, because the time period between achieving technological feasibility and product release for these product offerings was very short.  As a result, the incurred costs have been recorded as research and development costs in years 2015 and 2014.
 
Results of Continuing Operations for the Years Ended December 31, 2015 and 2014
 
Revenues.

Total revenues for the years ended December 31, 2015 and 2014 were $6,133,412 and $5,910,328, respectively.  Total revenues are comprised of software license/subscription revenue and hardware, installation and other revenue.  Software license/subscriptions revenue is a key indicator of revenue performance in future years, since this revenue represents that portion of our revenue that is anticipated to recur as our service contracts renew from year-to-year.  Hardware, installation and other revenue is a one-time revenue event, and is not a key indicator of future performance.  Software license/subscriptions revenue totaled $3,312,977 and $2,662,237 for the years ended December 31, 2015 and 2014, respectively.  The increase in software license/subscriptions revenue was due to an increase in the number of law enforcement agency contracts executed between periods, revenues from our COPsync911 service and increased revenue attributable to contract renewals and one-time service fees totaling $303,000 were derived from the sales of third party computer aided dispatch services.  Hardware, installation and other revenue totaled $2,820,435 and $3,248,091 for the years ended December 31, 2015 and 2014, respectively.  These revenues involved a certain number of hardware intensive contracts involving both new customers and existing customers electing to replace or update their computer equipment, plus sales of our VidTac product offering.  VidTac revenues were approximately $598,000 and $652,000 for the years ended December 31, 2015 and 2014, respectively.  We believe the year-over-year decrease in sales of VidTac units resulted principally from our relatively new and inexperienced sales team.  We believe that in fiscal year 2016 we will experience increased customer orders for our VidTac product as the sales team matures and as certain feature sets and enhancements are incorporated into the product later in the year.

Many of our new contracts are multiple-year contracts that typically include hardware, installation and training (and integration in some cases) and one year of software license/subscriptions revenue during the first year of the contract, followed by software license/subscriptions revenue during the remaining years of the contract.  Normally, we receive full payment up front upon contract inception.  This up-front payment is initially recorded as deferred revenues and subsequently recognized as revenue during the service period.  As of December 31, 2015, we had $3,119,957 in deferred revenues, compared to $3,669,427 for 2014.  The decrease in deferred revenue resulted from the recognition of $303,000 of one-time service fees in 2015 from contractual payments we received in 2013. We do not believe our deferred revenues will have a material effect on our future working capital for the later years of the contract service periods because a large portion of our continuing customer support costs are incrementally fixed in nature.
 
 
We executed approximately 428 new service agreements (or contracts) in 2015, compared to approximately 347 new service agreements in 2014.  We expect to sign more new service agreements in 2016 than we did in 2015, primarily due to anticipated improvements in our sales staff.

Cost of Revenues and Gross Profit
 
The following is a summary of the cost of revenues and gross profit performances for the respective revenue types for the twelve month periods ended December 31, 2015 and 2014: 
 
   
For the twelve months ended December 31,
 
   
2015
   
2014
 
   
$
   
%
   
$
   
%
 
                             
  Hardware, installation and other revenues
                           
      Revenues
 
$
2,820,435
     
100
%
 
$
3,248,091
     
100
%
      Cost of Revenues-hardware & other external costs
   
2,113,593
     
75
%
   
2,332,922
     
73
%
      Cost of Revenues-internal costs
   
304,168
     
11
%
   
238,437
     
7
%
  Total Gross Profit
 
$
402,674
     
14
%
 
$
676,732
     
21
%
                                 
  Software license/subscription revenues
                               
      Revenues
 
$
3,312,977
     
100
%
 
$
2,662,237
     
100
%
      Cost of Revenues-internal costs
   
1,427,927
     
43
%
   
763,665
     
29
%
      Amortization of capitalized software development costs
   
-
     
0
%
   
436,471
     
16
%
  Total Gross Profit
 
$
1,885,050
     
57
%
 
$
1,462,101
     
55
%
                                 
  Total Company
                               
      Revenues
 
$
6,133,412
     
100
%
 
$
5,910,328
     
100
%
      Cost of Revenues
   
3,845,688
     
63
%
   
3,771,495
     
64
%
  Total Gross Profit
 
$
2,287,724
     
37
%
 
$
2,138,833
     
36
%
 
For the years ended December 31, 2015 and 2014, our total cost of revenues was $3,845,688 and $3,771,495, respectively.  As a result, we realized gross profits of $2,287,724 and $2,138,833, respectively, for the years ended December 31, 2015 and 2014.

Cost of revenues for hardware, installation and other revenues for the years ended December 31, 2015 and 2014 totaled $2,417,761 and $2,571,359, respectively.  Included in these cost of revenues are internal costs, which totaled $304,168 and $238,437 for the years ended December 31, 2015 and 2014, respectively.  The increase in internal costs between periods was due principally to increased headcount resulting from the increase in contracted hardware installations, particularly in the 2nd half of year 2015.  The total gross profit from hardware, installation and other revenue totaled $402,674 for the year ended December 31, 2015, compared to a gross profit of $676,732 for the comparable period in 2014.  This decrease in gross profit performance was due in part to an increase in grants and more aggressive pricing discounts on selected hardware items, increased cost of products and internal costs.  

Cost of revenues for software license/subscription revenues for the years ended December 31, 2015 and 2014 were $1,427,927 and $1,200,130, respectively.  The increase of approximately $227,797 was due to increased internal costs representing our customer support team and web-hosting facilities.  The increased costs were driven by increased headcount and the cost of outside service providers needed to support the increased number of customers and services offered to our customers.  The resulting gross profit from software license/subscription revenues for years ended December 31, 2015 and 2014 was $1,885,050 and $1,462,101, respectively.

Our total cost of revenues has the potential to fluctuate with revenues because of the variable cost nature of hardware, installation and other revenues contained in future contracts.  Conversely, our internal costs associated with installation, training, customer support and web-site hosting are relatively flat.  In both 2015 and 2014, these internal costs increased because we added headcount and increased services to be provided by outside service providers to support the increased number of customers and new products.
  
 
Operating Expenses
 
Research and Development
 
Total research and development expenses for the years ended December 31, 2015 and 2014 were $1,616,744 and $1,825,786, respectively.  The decrease between years was principally due to our decision to cut-back on the scalability project in the second quarter of 2015 because of financial constraints.  The scalability project involves reviewing the topology and architecture of our software-based service offerings and making system changes that will assist in the rapid growth of our service offerings in states outside of Texas.  Additionally, the expenses incurred in 2015 as well as 2014 were principally devoted to the continued development and refinement of our COPsync911 threat alert service, our VidTac system, and development efforts to enhance the scalability of our COPsync Network and COPsync911 service offerings. 

We anticipate these expenses increasing as we invest additional resources to migrate the entirety of our technology platform to the Microsoft Azure cloud, which, when completed, will provide us the ability to “scale” the business and service millions of users across the U.S.

Sales and Marketing

Total sales and marketing expenses for the years ended December 31, 2015 and 2014 were $2,225,212 and $1,408,659, respectively.  The $816,553 increase in these expenses consists principally of $429,577 for consultants used to help improve and expand COPsync’s sales effort, $386,075 for increases in personnel, to include salary increases and year-end commission accruals, a $35,287 increase for additional trade shows attended in 2015 versus 2014, partially offset by a $18,728 decrease in travel expenses due to reorganization of the sales team through more disciplined planning and travel, plus employee turn-over from time-to-time during the year which helped reduce the travel expenses.

We expect our sales and marketing expenses will increase in 2016, as we will be increasing our current staffing levels, both internal staffing as well as external consultants to increase sales outside the State of Texas.

 General and Administrative

Total general and administrative expenses for the years ended December 31, 2015 and 2014 were $2,471,896 and $2,960,262, respectively.  The $488,366 decrease in expenses was due principally to a $1,212,000 decrease in warrant expense for warrants granted to outside parties for services rendered in year 2014 and a $310,000 decrease in bad debt expense between 2015 and 2014, partially offset by increases of $565,000 in consultant fees, most of which involved the up-listing to The NASDAQ Capital Market; $300,000 for year-end management bonuses; $74,000 in travel expenses and $50,000 for increased miscellaneous departmental expenses.

We believe our general and administrative expenses for 2016 will remain relatively consistent with expense levels of 2015.
 
Other Income and Expense
 
For the year ended December 31, 2015, other expense totaled $2,388,102, consisting of $1,203,183 in direct and imputed interest expense, involving various debt instruments, $815,905 of costs for beneficial conversion features and 397,555 of losses on debt conversion relating to the conversion of convertible promissory notes, notes payable, warrant exercises and the conversion of Series B Preferred Stock, and is partially offset by $28,541 in interest income.  
 
For the year ended December 31, 2014, other expense totaled $167,593, consisting of $177,293 in interest expense, partially offset by $9,700 in interest income.
 
Liquidity and Capital Resources

We have funded our operations since inception through the sale of equity and debt securities and from cash generated by operating activities.  As of December 31, 2015, we had $8,295,310 in cash and cash equivalents, compared to $587,459 as of December 31, 2014.  The increase was due primarily to $11,080,068 net cash provided by financing activities, partially offset by $3,354,898 in net cash used in operating activities and $17,319 in net cash used in investing activities.  The net cash increase attributable to financing activities represents proceeds of $9,311,870 attributable to the Company’s listing on The NASDAQ Capital Market, $526,315 from the issuance of long-term notes payable, $600,000 from the issuance of short-term notes payable, $153,756 from the exercise of warrants for shares of our common stock, $1,596,753 net cash attributable to the Company’s private placement in the third quarter of 2015, $375,000 net cash received from the exercise of Series B warrants, partially offset by a $638,055 dividend paid to the Series B stockholders and payments on notes payable of $808,226.  
 
We had working capital of $5,059,800 on December 31, 2015, compared to a deficit of $3,484,825 on December 31, 2014.  Included in the working capital on December 31, 2015, are current liabilities of $2,028,120 in net deferred revenues attributable to future performance obligations under prepaid customer contracts, the future costs of which we believe will not represent a majority of these current liabilities.   
   
 
Plan of Operation for the Next Twelve Months
 
At December 31, 2015, the Company had cash and cash equivalents of $8,295,310, working capital of $5,059,800 and an accumulated deficit of $29,987,131.  The following factors are helping the Company manage its liquidity and enable it to progress its business towards cash-flow break-even, and ultimately profitability:  

(1)  Relative to our new order bookings, we signed service agreements for approximately $4,551,000 in new orders for the twelve-month period ended December 31, 2015, compared to approximately $4,500,000 in new orders for the comparable period in 2014.
  
(2)  On November 13, 2015, the Company’s stock and warrants commenced trading on The NASDAQ Capital Market under the symbols COYN and COYNW, respectively.  On November 18, 2015, the Company announced the closing of an underwritten public offering of 3,028,572 shares of common stock, and warrants to purchase up to an aggregate of 3,028,572 shares of common stock, at an offering price of $3.49 per share and $0.01 per warrant.  The warrants have a per share exercise price of $3.125, are exercisable immediately, and expire five years from the date of issuance.  The gross proceeds to COPsync from this offering was approximately $10.6 million before deducting $1.1 million of costs for the underwriting discount and other estimated offering expenses.  The Company also granted the underwriters a 45-day option to purchase up to an aggregate of 454,286 additional shares of common stock and/or up to 454,286 additional warrants to cover over-allotments, if any, of which the underwriters exercised their rights to the additional shares of common stock.

(3) On July 14, 2015, July 23, 2015 and August 10, 2015 we closed a private placement, in which we issued $1,795,000, in the aggregate, of convertible promissory notes and warrants to purchase Company common stock. The associated warrants are immediately exercisable at an exercise price of $3.125 per share for an aggregate of 527,634 shares of the Company’s common stock and expire five years from issuance.
 
(4)  During 2015, a combination of debt instruments and vendor payables were converted into shares of Company common stock, consisting of: an aggregate principal amount of $895,101 of convertible debt being converted into 142,211 shares, an aggregate principal amount of $675,250 of notes payable being converted into 139,364 shares and an aggregate amount of $236,265 of vendor payables being converted into 29,902 shares of Company common stock.
 
(5)  The Company continues to employ “just in time” principles in its procurement processes for third party hardware, meaning that it attempts to schedule delivery to the customer of the third party hardware that the Company sells immediately after it receives the hardware.  

(6)  We believe that we have the capability to reduce operating expenses, should circumstances warrant.

Based upon the above-listed factors, we believe we will have adequate cash resources for the next twelve months.    

Off-Balance Sheet Arrangements
 
As of December 31, 2015, we had no off-balance sheet arrangements.
 
Contractual Obligations
 
The following table summarizes our obligations to make future payments pursuant to certain contracts or arrangements as of December 31, 2015, as well as an estimate of the timing in which these obligations are expected to be satisfied:

   
Payments Due by Period
 
Contractual Obligations
 
Total
   
2016
     
2017-2018
     
2019-2020
   
After 2020
 
                                   
    Long-Term Debt Obligations
 
$
441,016
   
$
110,053
   
$
225,647
   
$
105,316
   
$
-
 
    Capital Lease Obligations
 
$
28,128
   
$
9,010
   
$
19,118
   
$
-
   
$
-
 
    Operating Lease Obligations
 
$
652,525
   
$
169,843
   
$
275,500
   
$
207,182
   
$
-
 
Total Contractual Obligations
 
$
1,121,669
   
$
288,906
   
$
520,265
   
$
312,498
   
$
-
 
 
Recently Issued Accounting Standards

For information regarding the impact of recently issued accounting standards, see Note 2 to our financial statements included in this report.
 
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not Applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
The financial statements and supplementary data required by this item are set forth in Item 15 of Part IV, beginning at page F-1 of this report, which are incorporated by reference to this Item 8 by reference.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A.  CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
 
Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2015.  Based upon that evaluation our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. 
 
Management’s Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2015 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2015, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. 

Limitations on Effectiveness of Controls and Procedures
 
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors or fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.  These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 
 
Changes in Internal Control over Financial Reporting
 
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

ITEM 9B.  OTHER INFORMATION
 
None.
 
 
PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Incorporated herein by reference to our Definitive Proxy Statement for our 2016 Annual Meeting of Stockholders, which we plan to file with the Securities and Exchange Commission by April 29, 2016, under “Proposal One: Election of Directors,” “Corporate Governance,” “Executive Officers,” and “Section 16(a) Ownership Reporting Compliance.”
 
ITEM 11. EXECUTIVE COMPENSATION
 
Incorporated herein by reference to our Definitive Proxy Statement for our 2016 Annual Meeting of Stockholders, which we plan to file with the Securities and Exchange Commission by April 29, 2016, under “Executive Compensation” and “Director Compensation.”
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
Incorporated herein by reference to our Definitive Proxy Statement for our 2016 Annual Meeting of Stockholders, which we plan to file with the Securities and Exchange Commission by April 29, 2016, under “Security Ownership of Certain Beneficial Owners.”
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Incorporated herein by reference to our Definitive Proxy Statement for our 2016 Annual Meeting of Stockholders, which we plan to file with the Securities and Exchange Commission by April 29, 2016, under “Corporate Governance.”
 
ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES
 
Incorporated herein by reference to our Definitive Proxy Statement for our 2016 Annual Meeting of Stockholders, which we plan to file with the Securities and Exchange Commission by April 29, 2016 under “Proposal For Ratification of the Selection of Our Independent Registered Public Accounting Firm” and “Report of the Audit Committee.”
 
PART IV
 
ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a)           The following documents are filed as part of this Report:
 
(1)           Financial Statements:
 
 
Page
   
Report of Independent Registered Public Accounting Firm
F-2
   
Balance Sheets
F-3
   
Statements of Operations
F-5
   
Statements of Stockholders’ Equity (Deficit)
F-6
   
Statements of Cash Flows
F-8
   
Notes to the Financial Statements
F-10
 
 (2)        Schedules:
 
See financial statements and the accompanying notes.
  
 
(3)         Exhibits:
 
See Index to Exhibits.
       
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
COPSYNC, INC.
 
       
Date: March 30, 2016
By:
/s/ Ronald A. Woessner
 
   
Ronald A. Woessner
 
   
Chief Executive Officer
 
       
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
           
 
/s/ Ronald A. Woessner
 
Chief Executive Officer and Director
March 30, 2016
 
 
 Ronald A. Woessner
 
(Principal Executive Officer)
   
           
 
/s/ Barry W. Wilson
 
Chief Financial Officer
March 30, 2016
 
 
 Barry W. Wilson
 
(Principal Financial Officer and Principal Accounting Officer)
   
           
 
/s/ Russell Chaney
 
Chairman and Director
March 30, 2016
 
 
 Russell Chaney
       
           
 
/s/ Shane Rapp
 
President and Director
March 30, 2016
 
 
 Shane Rapp
       
           
     
Director
March 30, 2016
 
 
 Joel Hochberg
       
           
     
Director
March 30, 2016
 
 
 Joseph R. Alosa
       
           
 
/s/ Robert Harris
 
Director
March 30, 2016
 
 
 Robert Harris
       
           
     
Director
March 30, 2016
 
 
Brian K. Tuskan
       
           
 
/s/ Luisa Ingargiola
 
Director
March 30, 2016
 
 
Luisa Ingargiola
       
           
 
 
INDEX TO EXHIBITS
 
Exhibit Number
 
Description
3.1
 
Amended and Restated Certificate of Incorporation filed on September 2, 2009 (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 20, 2009).
3.2
 
Certificate of Designations of Series B Convertible Preferred Stock filed on October 14, 2009 (Incorporated by reference to Registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2009).
3.3
 
Certificate of Amendment to Certificate of Incorporation effective as of October 14, 2015 (Incorporated by reference to Registrant’s Current Report on Form 8-K filed with the Commission on October 16, 2015).
3.4
 
Amended and Restated Bylaws (Incorporated by reference to Registrant’s Current Report on Form 8-K filed with the Commission on September 15, 2015).
4.1
 
Form of Common Stock Certificate (Incorporated by reference to Registrant’s Registration Statement on Form SB-2 (Registration No. 333-140320)).
10.1
 
Form of Three-Year COPsync, Inc. Promissory Note, originally issued in 2014 (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed with Commission on November 11, 2014).
10.2
 
Form of Warrant to Purchase Common Stock (Cash Payment Exercise) (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed with Commission on November 11, 2014).
10.3
 
Form of Warrant to Purchase Common Stock (Cashless Exercise) (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed with Commission on November 11, 2014).
10.4
 
Form of Three-Year COPsync, Inc. Promissory Note, originally issued in 2015 (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2015).
10.5
 
Form of Warrant, dated as of October 14, 2009, issued by registrant to the investors in its Series B Preferred Stock (Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2009).
10.6
 
Investors’ Rights Agreement, dated as of October 14, 2009, by and among registrant and the investors in its Series B Preferred Stock (excluding exhibits) (Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2009).
10.7+
 
Amended and Restated Executive Employment Agreement, dated April 29, 2009, by and between Russell D. Chaney and registrant (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 20, 2009)
10.8+
 
Amended and Restated Executive Employment Agreement, dated April 29, 2009, by and between J. Shane Rapp and registrant (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 20, 2009)
10.9+
 
Stock Restriction Agreement, dated as of August 27, 2010, by and between Ronald A. Woessner and registrant.  (Incorporated by reference to the registrant’s Annual Report on Form 10-K filed with the Commission on April 15, 2011).
10.10+
 
Form of Indemnification Agreement, dated as of October 14, 2009, by and between registrant and its officers and directors (Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2009).
10.11+
 
Registrant’s 2009 Long-Term Incentive Plan (Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-161882)).
10.12+
 
Amendment No. 1 to Registrant’s 2009 Long-Term Incentive Plan (Incorporated by reference to Registrant’s Information Statement in Schedule 14C, filed on March 2, 2015).
10.13
 
Form of Warrant, issued by the registrant to certain investors (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on April 6, 2011).
10.14
 
Form of Convertible Note, issued by the registrant to certain investors (Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the Commission on April 6, 2011).
10.15
 
Commercial Sublease Agreement with Addison Tower Investment Company LLC (entered into as of January 28, 2013) (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2015).
10.16
 
Commercial Lease Agreement with 1000 Walnut Limited, as amended on June 17, 2014 (originally executed on March 28, 2014) (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2015).
10.17
 
Advisory Agreement with Maxim Group LLC (entered into as of October 6, 2014) (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2015).
 
 
10.18
 
Form of Registration Rights Agreement issued pursuant to the Company’s 2015 Private Placement Offering (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 11, 2015).
10.19
 
Form of Securities Purchase Agreement issued pursuant to the Company’s 2015 Private Placement Offering (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 11, 2015).
10.20
 
Form of Convertible Promissory Note issued pursuant to the Company’s 2015 Private Placement Offering (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 11, 2015).
10.21
 
Form of Stock Purchase Warrant issued pursuant to the Company’s 2015 Private Placement Offering (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 11, 2015).
10.22
 
Warrant Agreement (Incorporated by reference to Registrant’s Current Report on Form 8-K dated November 18, 2015).
10.23
 
Form of Warrant (included in Exhibit 10.22) (Incorporated by reference to Registrant’s Current Report on Form 8-K dated November 18, 2015).
10.24
 
Form of Underwriter’s Warrant (included in Exhibit 1.1) (Incorporated by reference to Registrant’s Current Report on Form 8-K filed with the Commission on November 18, 2015).
10.25
 
Form of Series B Stock Conversion, Warrant Exercise and Investor Rights Agreement (Incorporated by reference to Registrant’s Registration Statement on Form S-1/A filed with the Commission on October 29, 2015).
10.26
 
Form of Conversion and Exercise Notice (Incorporated by reference to Registrant’s Registration Statement on Form S-1/A filed with the Commission on October 29, 2015).
10.27
 
Underwriting Agreement dated November 18, 2015 (Incorporated by reference to Registrant’s Current Report on Form 8-K dated November 18, 2015).
10.28
 
Form of Amendment to Registration Rights Agreement (Incorporated by reference to Registrant’s Registration Statement on Form S-1 filed with the Commission on December 18, 2015).
10.29
 
Form of Amendment to Warrant Agreement (Incorporated by reference to Registrant’s Registration Statement on Form S-1 filed with the Commission on December 18, 2015).
23.1#
 
31.1#
 
31.2#
 
32.1#
 
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Calculation Linkbase Documents
101.DEF
 
XBRL Taxonomy Linkbase Document
101.LAB
 
XBRL Taxonomy Label Linkbase Document
101.PRE
 
XBRL Taxonomy  Presentation Linkbase Document

#
Filed herewith
+
Indicates a management contract or compensatory plan
 
 
INDEX TO FINANCIAL STATEMENTS
 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

To The Board of Directors and Stockholders of
COPsync, Inc.:
 
We have audited the accompanying balance sheets of COPsync, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of COPsync, Inc. as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

PMB Helin Donovan, LLP
 
 
/s/ PMB Helin Donovan, LLP
 
March 30, 2016
Dallas, Texas
 
 
COPSYNC, INC.
Balance Sheets
 
ASSETS

   
December 31,
 2015
   
December 31,
 2014
 
             
CURRENT ASSETS
           
             
Cash and cash equivalents
 
$
8,295,310
   
$
587,459
 
Accounts receivable, net
   
426,265
     
223,622
 
Inventories
   
484,695
     
246,077
 
Prepaid expenses and other current assets
   
543,949
     
270,148
 
Deferred loan costs
   
-
     
50,000
 
                 
Total Current Assets
   
9,750,219
     
1,377,306
 
                 
PROPERTY AND EQUIPMENT
               
                 
Property and equipment
   
317,948
     
328,665
 
Less: accumulated depreciation
   
(193,760
)
   
(152,789
)
                 
Net Property and Equipment
   
124,188
     
175,876
 
                 
OTHER ASSETS
               
                 
TOTAL ASSETS
 
$
9,874,407
   
$
1,553,182
 
 
The accompanying notes are an integral part of these financial statements.
 
 
COPSYNC, INC.
Balance Sheets (Continued)
 
LIABILITIES AND STOCKHOLDERS' DEFICIT

   
December 31,
 2015
   
December 31,
 2014
 
             
CURRENT LIABILITIES
           
             
Accounts payable and accrued expenses
 
$
2,486,529
   
$
1,526,612
 
Deferred revenues
   
2,028,120
     
2,526,990
 
Obligation under capital lease
   
9,010
     
7,632
 
Convertible notes payable, current portion
   
-
     
9,608
 
Three Year, 50% notes payable, net of $0 discount, current portion
   
40,500
     
121,500
 
Notes payable, current portion
   
126,260
     
669,789
 
                 
Total Current Liabilities
   
4,690,419
     
4,862,131
 
                 
LONG-TERM LIABILITIES
               
                 
Deferred revenues
   
1,091,838
     
1,142,437
 
Obligation under capital lease
   
19,118
     
27,466
 
Convertible notes payable
   
30,000
     
389,178
 
Three Year, 50% notes payable, net of $15,000 discount, non-current portion
   
66,000
     
291,118
 
Notes payable, non-current portion
   
219,963
     
56,639
 
                 
Total Long-Term Liabilities
   
1,426,919
     
1,906,838
 
                 
Total Liabilities
   
6,117,338
     
6,768,969
 
                 
COMMITMENTS AND CONTINGENCIES
   
-
     
-
 
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
Series A Preferred stock, par value $0.0001 per share,
 1,000,000 shares authorized; 100,000 shares issued
 and outstanding, respectively
   
10
     
10
 
Series B Preferred stock, par value $0.0001 per share, 0 and
 375,000 shares authorized; issued; and outstanding, respectively
   
-
     
37
 
Common stock, par value $0.0001 per share, 50,000,000
 shares authorized; 8,362,903 and 4,037,049 issued and
 outstanding, respectively
   
837
     
404
 
Common stock to be issued, 260,206 and 6,000 shares, respectively
   
700,121
     
42,000
 
Additional paid-in-capital
   
33,043,232
     
17,650,034
 
Accumulated deficit
   
(29,987,131
)
   
(22,908,272
)
                 
Total Stockholders' Equity (Deficit)
   
3,757,069
     
(5,215,787
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
$
9,874,407
   
$
1,553,182
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 COPSYNC, INC.
Statements of Operations

   
For the Twelve Months Ended
 
   
December 31,
 
   
2015
   
2014
 
             
REVENUES
           
             
Hardware, installation and other revenues
 
$
2,820,435
   
$
3,248,091
 
Software license/subscription revenues
   
3,312,977
     
2,662,237
 
                 
Total Revenues
   
6,133,412
     
5,910,328
 
                 
COST OF REVENUES
               
                 
Hardware and other costs
   
2,417,761
     
2,571,359
 
Software license/subscriptions
   
1,427,927
     
1,200,136
 
                 
Total Cost of Revenues
   
3,845,688
     
3,771,495
 
                 
GROSS PROFIT
   
2,287,724
     
2,138,833
 
                 
OPERATING EXPENSES
               
                 
Research and development
   
1,616,744
     
1,825,786
 
Sales and marketing
   
2,225,212
     
1,408,659
 
General and administrative
   
2,471,896
     
2,960,262
 
                 
Total Operating Expenses
   
6,313,852
     
6,194,707
 
                 
LOSS FROM OPERATIONS
   
(4,026,128
)
   
(4,055,874
)
                 
OTHER INCOME (EXPENSE)
               
                 
Interest income
   
28,541
     
9,700
 
Interest expense
   
(1,203,183
)
   
(177,293
)
Loss on debt conversion
   
(397,555
    -  
Beneficial conversion feature expense
   
(815,905
)
   
-
 
                 
Total Other Expense
   
(2,388,102
)
   
(167,593
)
                 
NET LOSS BEFORE INCOME TAXES
   
(6,414,230
)
   
(4,223,467
)
                 
INCOME TAXES
   
-
     
-
 
                 
NET LOSS
 
$
(6,414,230
)
 
$
(4,223,467
)
                 
Series B preferred stock dividend
   
(38,692
)
   
(33,693
)
Accretion of beneficial conversion feature on preferred shares dividends issued in kind
   
(52,500
)
   
(71,307
)
                 
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
 
$
(6,505,422
)
 
$
(4,328,467
)
                 
LOSS PER COMMON SHARE - BASIC & DILUTED
 
$
(1.43
)
 
$
(1.18
)
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC & DILUTED
   
4,543,886
     
3,659,734
 
 
The accompanying notes are an integral part of these financial statements. 
 
 
COPSYNC, INC
Statements of Stockholders' Equity (Deficit) 
For the years ended December 31, 2015 and 2014

                                             
Common
                   
                                       
Common
   
Stock
               
Total
 
                                       
Stock
   
Warrants
   
Additional
         
Shareholder
 
   
Preferred Stock A
   
Preferred Stock B
   
Common Stock
   
To Be
   
To Be
   
Paid-in
   
Accumulated
   
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Issued
   
Issued
   
Capital
   
Deficit
   
(Deficit)
 
                                                                   
Balance, January 1, 2014
   
100,000
   
$
10
     
375,000
   
$
37
     
3,500,290
   
$
350
   
$
1,500
   
$
-
   
$
13,727,123
   
$
(18,651,112
)
 
$
(4,922,092
)
                                                                                         
Valuation of the vested portion of employee and non-employee stock options
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
147,096
     
-
   
$
147,096
 
                                                                                         
Valuation of the vested portion of non-employee warrants
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
209,576
     
-
   
$
209,576
 
                                                                                         
Valuation of the vested portion of non-employee stock grants
   
-
     
-
     
-
     
-
     
50,000
     
5
     
-
     
-
     
1,049,995
     
-
   
$
1,050,000
 
                                                                                         
Common stock to be issued for cash at $5.00 per share from warrant exercises
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
480
     
-
     
-
   
$
24,000
 
                                                                                         
Capital contributed/co-founders' forfeiture of contractual compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
79,000
     
-
   
$
79,000
 
                                                                                         
Common stock issued for services at $5.00 per share
   
-
     
-
     
-
     
-
     
12,000
     
1
     
-
     
-
     
59,999
     
-
   
$
60,000
 
                                                                                         
Common stock issued for cash at $5.00 per share
   
-
     
-
     
-
     
-
     
424,862
     
43
     
-
     
-
     
2,084,072
     
-
   
$
2,084,115
 
                                                                                         
Common stock issued for cash at $5.00 per share from warrant exercises
   
-
     
-
     
-
     
-
     
4,800
     
0
     
-
     
-
     
24,000
     
-
   
$
24,000
 
                                                                                         
Common stock issued for cash at $10.00 per share from warrant exercises
   
-
     
-
     
-
     
-
     
2,000
     
0
     
-
     
-
     
20,000
     
-
   
$
20,000
 
                                                                                         
Common stock issued in conversion of notes payable and accrued interest at $5.00 per share
   
-
     
-
     
-
     
-
     
43,097
     
5
     
-
     
-
     
215,480
     
-
   
$
215,485
 
                                                                                         
Common stock to be issued for cash at $5.00 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
330
     
-
     
-
     
-
   
$
16,500
 
                                                                                         
Series B Preferred stock- cumulative dividends
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
105,000
     
(105,000
)
 
$
-
 
                                                                                         
Accretion of Beneficial Conversion Feature on Preferred Shares dividends issued in kind
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(71,307
)
   
71,307
   
$
-
 
                                                                                         
Net loss for the year ended December 31, 2014
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(4,223,467
)
 
$
(4,223,467
)
                                                                                         
Balance, December 31, 2014
   
100,000
   
$
10
     
375,000
   
$
37
     
4,037,049
   
$
404
   
$
18,000
   
$
24,000
   
$
17,650,034
   
$
(22,908,272
)
 
$
(5,215,787
)
  
The accompanying notes are an integral part of these financial statements.
 
 
 COPSYNC, INC
Statements of Stockholders' Equity (Deficit) (Continued) 
For the year ended December 31, 2015 and 2014
 
                                             
Common
                   
                                       
Common
   
Stock
                Total  
                                       
Stock
   
Warrants
    Additional          
Shareholder
 
   
Preferred Stock A
   
Preferred Stock B
   
Common Stock
   
To Be
   
To Be
   
Paid-in
   
Accumulated
    Equity  
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Issued
   
Issued
   
Capital
   
Deficit
   
 (Deficit)
 
                                                                   
Balance, January 1, 2015
    100,000     $ 10       375,000     $ 37       4,037,049     $ 404     $ 18,000     $ 24,000     $ 17,650,034     $ (22,908,272 )   $ (5,215,787 )
                                                                                    $ -  
Capital contributed/co-founders' forfeiture of contractual compensation
    -       -       -       -       -       -       -       -       79,000       -     $ 79,000  
                                                                                         
 
Valuation of the vested portion of employee and non-employee stock options
    -       -       -       -       -       -       -       -       182,114       -     $ 182,114